It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like ESSA Bancorp (NASDAQ:ESSA). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
How Quickly Is ESSA Bancorp Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. It certainly is nice to see that ESSA Bancorp has managed to grow EPS by 19% per year over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of ESSA Bancorp's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. ESSA Bancorp maintained stable EBIT margins over the last year, all while growing revenue 4.8% to US$65m. That's progress.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Since ESSA Bancorp is no giant, with a market capitalisation of US$183m, you should definitely check its cash and debt before getting too excited about its prospects.
Are ESSA Bancorp Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
It's nice to see that there have been no reports of any insiders selling shares in ESSA Bancorp in the previous 12 months. With that in mind, it's heartening that Robert Selig, the Independent Chairman of the Board of the company, paid US$16k for shares at around US$16.33 each. Decent buying like this could be a sign for shareholders here; management sees the company as undervalued.
The good news, alongside the insider buying, for ESSA Bancorp bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at US$16m. That's a lot of money, and no small incentive to work hard. As a percentage, this totals to 8.5% of the shares on issue for the business, an appreciable amount considering the market cap.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because ESSA Bancorp's CEO, Gary Olson, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to ESSA Bancorp, with market caps between US$100m and US$400m, is around US$1.8m.
ESSA Bancorp's CEO took home a total compensation package worth US$1.1m in the year leading up to September 2021. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Is ESSA Bancorp Worth Keeping An Eye On?
You can't deny that ESSA Bancorp has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. These things considered, this is one stock worth watching. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of ESSA Bancorp. You might benefit from giving it a glance today.
Keen growth investors love to see insider buying. Thankfully, ESSA Bancorp isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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